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Depreciation Functions
Excel lets you choose from four different depreciation functions, each of which uses a slightly different method for depreciating an asset over time. These built-in depreciation functions found on the Financial button’s drop- down menu on the Formulas tab of the Ribbon include the following:
✦ SLN(cost,salvage,life) to calculate straight-line depreciation
✦ SYD(cost,salvage,life,per) to calculate sum-of-years-digits depreciation
✦ DB(cost,salvage,life,period,[month]) to calculate declining balance depreciation
✦ DDB(cost,salvage,life,period,[factor]) to calculate double-declining balance depreciation
As you can see, with the exception of the optional month argument in the DB function and the optional factor argument in the DDB function, all the depre- ciation functions require the cost, salvage, and life arguments, and all but the SLN function require a period argument as well:
✦ Cost is the initial cost of the asset that you’re depreciating.
✦ Salvage is the value of the asset at the end of the depreciation (also
known as the salvage value of the asset).
✦ Life is the number of periods over which the asset is depreciating (also known as the useful life of the asset).
✦ Per or period is the period over which the asset is being depreciated. The units that you use in the period argument must be the same as those used in the life argument of the depreciation function so that if you express the life argument in years, you must also express the period argument in years.
Note that the DB function accepts an optional month argument. This argument is the number of months that the asset is in use in the first year. If you omit the month argument from your DB function, Excel assumes the number of months of service to be 12.
When using the DDB function to calculate the double-declining balance method of depreciation, you can add an optional factor argument. This argument is the rate at which the balance declines in the depreciation schedule. If you omit this optional factor argument, Excel assumes the rate to be 2 (thus, the name double-declining balance).
Figure 4-4 contains a Depreciation table that uses all four depreciation methods to calculate the depreciation of office furniture originally costing $50,000 to be depreciated over a 10-year period, assuming a salvage value of $1,000 at the end of this depreciation period.
Depreciation Functions 383
Book III Chapter 4
Financial Formulas